BILL ANALYSIS
AB 941
Page 1
Date of Hearing: April 26, 2005
ASSEMBLY COMMITTEE ON JUDICIARY
Dave Jones, Chair
AB 941 (Canciamilla) - As Amended: April 13, 2005
SUBJECT : CONSTRUCTION DEFECTS: PRE-LITIGATION REQUIREMENTS FOR
HOMEOWNERS
KEY ISSUE : SHOULD CERTAIN HOMEOWNERS BE REQUIRED TO EXHAUST
UNUSUAL AND UNDEFINED PROCEDURES PRIOR TO ENFORCING THEIR RIGHTS
TO OBTAIN RELIEF FOR EXISTING CONSTRUCTION DEFECTS, POTENTIALLY
LEADING TO CONFUSION AND PROTRACTED DISPUTES OVER ANCILLARY
ISSUES?
SYNOPSIS
This bill would establish a general requirement for homeowners
to contact the builder to inform the builder of the nature and
location of a construction defect and allow the builder to
inspect the defect at a mutually convenient time before the
homeowner could seek legal remedies for homes purchased prior to
January 2003. Supporters contend that it would help to resolve
disputes quickly and effectively, avoiding the time and cost of
litigation, and thereby lower the cost of insurance for
builders. The Consumer Attorneys of California opposes the
bill, arguing that it is unfair and unnecessary and upsets the
consensus underlying SB 800 of 2002, which applies only
prospectively to homes sold after January 2003. The analysis
raises questions of interpretation and implementation in light
of the ill-defined nature of the obligations imposed by the
bill. This ambiguity might have the inadvertent consequence of
creating ancillary legal battles over interpretation of and
compliance with the law - complicating rather than preventing
litigation. The prospect of creating new battles issues in
construction defect litigation could be heightened because
noncompliance by the homeowner would relieve the builder of all
legal responsibility.
SUMMARY : Requires pre-litigation procedures for homeowners
seeking to enforce legal rights to obtain relief for defects in
the construction of their homes. Specifically, this bill :
1)Provides that prior to filing any action for construction
defect claims for homes sold prior to January 2003 a homeowner
shall contact the builder of that home to inform the builder
AB 941
Page 2
of the nature and location of the defect and allow the builder
to inspect the defect at a mutually convenient time if the
builder has provided the homeowner a written copy of the law
to be enacted by this act.
2)Exempts condominium association and other common interest
development claims from the Calderon-Steinberg process for
resolution of construction defect disputes if both the
homeowner and the builder comply with the procedure in this
bill.
EXISTING LAW:
1)Existing law, applicable to residences originally sold on or
after January 1, 2003, specifies the rights and requirements
of a homeowner to bring an action for construction defects,
including applicable standards for home construction, the
statute of limitations, the burden of proof, the damages
recoverable, a detailed pre-litigation procedure, and the
obligations of the homeowner. (Civil Code section 895 et
seq.)
2)Provides that before an association files a complaint for
damages against a builder, developer, or general contractor of
a common interest development based upon a claim for defects
in the design or construction of the common interest
development, detailed dispute resolution procedures must be
satisfied by both the association and the respondent,
initiated by a "Notice of Commencement of Legal Proceedings."
(Civil Code section 1375 et seq.)
FISCAL EFFECT : As currently in print, this bill is keyed
non-fiscal.
COMMENTS : The author states, "In 2002 the legislature passed SB
800 to address construction defect litigation and its harmful
effects on insurance availability and cost to builders and trade
contractors. General liability insurance was difficult for any
residential project and nearly non- existent for an "attached
product" - i.e., condominiums and townhomes. Historically, for
every dollar spent to repair a problem in a construction defect
lawsuit, approximately $6 went to defense and expert costs in
the case. SB 800 set a course to change that, and the insurers
- and homeowners - are responding positively. SB 800, the
"right to repair" legislation, is applicable to new homes sold
AB 941
Page 3
after January 1, 2003. However, with California's 10-year
liability tail, this leaves homes built between 1995 and 2003
open to the abuses of the old system and costly litigation."
The author goes on to say, "AB 941 provides that a homeowner
notify a builder when a problem arises in the home and offer
that builder the opportunity to inspect the problem. The public
policy mirrors that of SB 800 - homeowners want problems fixed
and builders want an opportunity to hear from their homeowners
before hearing from a lawyer. However, there are significant
differences in the two measures - designed to protect the
consumer. Whereas SB 800 requires the builder have the right to
repair a problem, AB 941 simply creates the opportunity for an
offer to repair - an offer which the homeowner may simply turn
down and then proceed with litigation. No other obligations are
created by this bill."
According to the author, "This measure will give homeowners and
builders an opportunity to proceed to remedy a problem short of
litigation, but does not take away any existing remedy from the
homeowner, nor does it preclude the homeowner from consulting
with an attorney prior to the builder's inspection. Moreover,
according to the National Home Builders Association, 23 other
states have now passed some form of "Notice and Opportunity to
Repair," and many of those provisions are retroactive."
SB 800 of 2002 Established Detailed Rights And Obligations For
Construction Defect Disputes . For new homes sold after January
2003, SB 800 established detailed rights and requirements for
construction defects disputes, including applicable standards
for home construction, the statute of limitations, the burden of
proof, the damages recoverable, a detailed pre-litigation
procedure, and the obligations of the homeowner. (Civil Code
section 895 et seq.) For example, it established specific
standards for construction and operation of the component
systems of a house, ranging from soils to roofs, and minimum
warranties for other items. With respect to pre-litigation
procedures, SB 800 created detailed requirements for notices,
claims, acknowledgements, methods of communication, certified
mail, access to plans and reports, inspections, testing, offers
to repair and/or provide a monetary remedy, selection of
contractors to conduct repairs, mediation of disagreements, time
periods at each stage of the process, tolling of deadlines, and
treatment of subsequently discovered claims, among other issues.
While the creation of pre-litigation procedures is unusual in
AB 941
Page 4
the law regarding claims for injury to persons and property, it
was thought that overall package of rights and responsibilities
for homeowners and builders struck a fair compromise, and one
that would be workable in practice because of the level of
detail prescribed in that legislation.
By Contrast, The Provisions Of This Bill Are Much Less Defined
And May Therefore Lead To Potential Confusion And Ancillary
Disputes Regarding Compliance With This Obligation. This bill
eschews the precision of SB 800 for a general statement to the
effect that the homeowner "shall contact the builder of that
home to inform the builder of the nature and location of the
defect and allow the builder to inspect the defect at a mutually
convenient time."
While perhaps enticing in its simplicity, this level of
generality leaves many questions unanswered. For example, must
the contact with the builder be in writing or is simple oral
communication sufficient? In addition, what is meant by the
"nature and location of the defect"? How detailed must be the
homeowner's identification of the defect? If the defect
manifests itself as the appearance of water inside a room, must
the homeowner identify the defect as a faulty window system as
opposed to a stucco or roofing problem? If the water intrusion
appeared on a downstairs wall but had traveled from a pipe in
the roof, would it be sufficient that the homeowner identified
the wall as the location of the defect? These are issues of no
small significance because the homeowner's failure to meet this
obligation would constitute a complete bar to any legal remedy
for the defects.
Nor does the bill make clear what the homeowner must do to
"allow" the builder to conduct an inspection. If the homeowner
were to put the builder on clear notice of the defect, but did
not also specifically offer to open the home to inspection,
would the homeowner have satisfied her obligation? If the
homeowner's communication with the builder were ambiguous with
respect to the homeowner's willingness to have the inspection
conducted, could the builder block a subsequent suit? Likewise,
if the homeowner was amenable to certain types of inspections
but less so to other methods, would that disagreement be
sufficient to allow the builder to argue that the homeowner did
not allow the inspection required by law?
Similarly, if the homeowner is required to permit an inspection
AB 941
Page 5
by the builder, how invasive may be this inspection and who
would bear the costs of the inspection, including any damage to
the home, such as drilling or excavation, in the course of
conducting the inspection? If the inspection were to
necessitate the homeowner's displacement from the home, would
the builder be required to pay for temporary relocation costs?
Moreover, when must the homeowner communicate with the builder?
Would it be sufficient if the contact came very shortly before
suit? If so, what purpose would be served in avoiding or
limiting the scope or difficulty of litigation? A related
question might be why the bill provides only for inspection of
the defect by the builder, rather than repair or other remedy?
Presumably in order to make any inspection meaningful for the
homeowner, or lead to resolution of the dispute without the need
for litigation, the inspection would be predicate to repair.
Yet the bill does not impose any obligation on the builder to
repair the defect or otherwise resolve the problem once it
conducts the inspection. Nor does the bill require that the
builder share the results of the inspection with the homeowner,
or otherwise provide the homeowner with information that would
allow the homeowner to assess the nature of the problem, or of
the builder's response, or to try to resolve the problem without
litigation.
Curiously, the bill also provides that the obligation to contact
the builder commences only if and when the builder has provided
the homeowner a written copy of the act. Because there is no
obligation on the part of the builder to do so at any particular
time, this provision would appear to allow a builder to
unilaterally dictate the timing of the process.
All of the foregoing questions are complicated still further by
considering the prospect of second and later purchasers. Would
the original owner's satisfaction of these requirements cover
later purchasers? If not, what if a sale took place at some
point during the process? Would the new purchaser be required
to start the process all over again? Likewise, it is not clear
whether the builder's provision of a copy of the law to one
purchaser be sufficient to bind subsequent purchasers.
SB 800 Applied Only Prospectively In Order To Avoid The
Troublesome Issues Presented By This Bill. SB 800 was the
product of consensus reached among many parties, principally the
AB 941
Page 6
California Building Industry Association (CBIA) and the Consumer
Attorneys of California. During negotiations on that measure,
the question was considered whether it should apply to all
future construction defect claims or only to those for new home
sales after the homeowner had been notified of their rights and
obligations by the builder, and only after contracts were signed
to take into account its provisions. While some parties in
those negotiations desired that it apply retroactively, there
was not consensus on this issue. This bill, by contrast, would
apply to homeowners who had no prior notice and who may have
contract provisions inconsistent with the bill. Indeed, it
would also apparently apply to homeowners who have been in
ongoing disputes regardless of the facts and circumstances of
those controversies.
ARGUMENTS IN SUPPORT: The sponsor, CBIA states that the bill
provides homeowners and homebuilders an opportunity to resolve
potential problems quickly and effectively while still
maintaining the homeowner's access to counsel and the courts.
The Civil Justice Association of California (CJAC) also writes
to support the bill, stating that AB 941 "has the same objective
as SB 800 and creates a similar procedure to resolve alleged
defects for homes built prior to January 1, 2003. Extending
this process to cure defects before litigation commences will
benefit homeowners and reduce costly litigation for homes built
within the past 10 years."
The position of the Personal Insurance Federation of California
is nearly identical. PIFC argues that AB 941 "establishes a
process whereby the injured party ? can get the repairs he or
she needs as quickly and efficiently as possible. In this
sense, AB 941 is similar to SB 800. The goal of SB 800 is to
expedite home repairs and lessen the need for costly and
time-consuming lawsuits. PFIC is hopeful that if enacted AB 941
will enable homeowners to get the repairs they need without
having to resort to lengthy and costly litigation. This in turn
will provide insurers with a degree of confidence that
litigation costs associated with homes built prior to January 1,
2003 will stabilize."
ARGUMENTS IN OPPOSITION: Consumer Attorneys of California
oppose the bill for two primary reasons. "First, we do not
think it is fair to homeowners to impose retroactive
requirements on them long after they have bought their homes.
AB 941
Page 7
Most homeowners call the builder repeatedly to try to get their
homes fixed, only to be faced with no call backs, disconnected
customer service numbers, cosmetic patch jobs, and empty
promises. It is only after months and sometimes years of
frustration that homeowners turn to seek legal help. Most
people have no interest in suing the developer until they are
angry and desperate. They are not enthusiastic about filing a
legal action unless they feel it is absolutely necessary.
However, under this bill, a person who bought a single family
home and suffered through years of constructive defects without
relief would now have to give a special statutory notice to the
builder and permit the builder to come into and inspect the home
(and perhaps conduct destructive tests) before going to court.
The builder could trigger this new statutory delay by simply
giving the homeowner a written copy of the new section. Imagine
the anger of a single family homeowner who has struggled with an
irresponsible developer that never fixed a leaking roof or came
out and caulked a sagging wall and declared the problem solved.
When the homeowner is finally so beleaguered that she is
contemplating legal action, the developer can use this new
statute as another delaying tactic."
"Second, during the lengthy and arduous negotiations that led to
the passage of SB 800, there was substantial discussion of
retroactivity and that idea was ultimately rejected. It was our
understanding that the new requirements on homeowners would only
be imposed prospectively, with full disclosure at the time of
purchase. All the agreements made on SB 800 were made with that
understanding. One reason for this decision was that the
"Calderon process," which imposes yet another pre-litigation
procedure on homeowners, still applies to all pre-SB 800
lawsuits filed by condominium associations. Thus, AB 941 would
impose a third notice and inspection requirement on a third
category of homeowners: pre- SB 800 single family home buyers.
It is time to stop passing these new procedures, whether simple
or complicated, and the legislature should not reach back in
time to impair the legal rights of single family home owners."
REGISTERED SUPPORT / OPPOSITION :
Support
California Building Industry Association (sponsor)
California Landscape Contractors Association
Civil Justice Association of California
AB 941
Page 8
Personal Insurance Federation of California
Opposition
California Professional Association of Specialty Contractors
(unless amended)
Consumer Attorneys of California
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334